The website of Mt Gox, one of the major exchange for Bitcoin, is not longer online amid reports it suffered a debilitating theft, a new setback for efforts to gain legitimacy for the virtual currency

Embattled Bitcoin exchange Mt Gox has largely vanished from the Internet amid accusations that the exchange is insolvent after a years-long theft that resulted in the loss of hundreds of millions of dollars, says CNET in a report.

According to media reports, the web site for the Tokyo-based exchange has been wiped clean, as has its official Twitter feed. The disappearance of the site follows the resignation Sunday of Mt Gox from the board of the Bitcoin Foundation, a group seeking legitimacy for the currency.

Mt Gox suspended cash withdrawals on 7th February, claiming there was a problem with the programme that powers the currency and allows it to be transferred between users or exchanged for goods and services. The value of the crypto-unit has been falling ever since.

Around midday on Tuesday, a Bitcoin was worth $135, compared with the $522 quoted by the CoinDesk Bitcoin Price Index, which tracks the price of the currency on major exchanges. In January, a Bitcoin was worth more than $900 at Mt Gox, which is one of the world's oldest exchanges for the unit, says a report from AlJazeera.com.

Separately, several Bitcoin exchanges released a joint statement saying that funds under their control are held securely. The Bitcoin operators said they are working to "re-establish the trust squandered" by the failings of Mt Gox, which should not be considered a reflection of the value of Bitcoin or the digital currency industry.

Bitcoin was started in 2009 as a currency free from government controls. It had been inching toward broader acceptance despite wild swings in value in the past year. For most of the currency's history, each digital coin had been worth less than $10.

Last month, Reserve Bank of India (RBI) has cautioned users, holders and traders of virtual currencies (VC) like Bitcoin, Litecoin, BBQcoin and Dogecoin and is examining the legal and regulatory framework of VCs. In a press release, RBI stated that Bitcoin and other VCs are exposed to potential financial, operational, legal, customer protection and security related risks.

Earlier, RBI had said that VC including Bitcoin may pose several other risks to users, including the following:

• VC being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VC held in them;

• Payments by VC, such as, Bitcoin take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems, disputes and charge backs etc;

• There is no underlying or backing of any asset for VC. As such, their value seems to be a matter of speculation. Huge volatility in the value of VC has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value;

• It is reported that VC, such as, Bitcoin are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VC on such platforms are exposed to legal as well as financial risks;

• There have been several media reports of the usage of VC, including Bitcoin, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

MOHAN

The bubble bursts

Courts need to distinguish the difference between a civil and a criminal offence. For a civil offence, the rigour of embarrassment cannot be so high as to be equated with a criminal offence

Banks led by State Bank of India (SBI) are in the practice of publishing photographs of people and public notices against companies, which have defaulted on their loan obligations. It was only last week that the union government asked banks not to publish photographs of defaulters of education loan. But what about other loan defaulters? This article is a continuation of an article previously published on this website by Vinod Kothari (Is publishing photos of home loan defaulters correct?) and takes a sharp look at the practice of name-and-shame used by banks against loan defaulters.

Who is a wilful defaulter?

A "wilful default" is deemed to have occurred if any of the following events is noted:-

a) Default in repayment obligations by the unit to the lender even when it has the capacity to honour the said obligations.

b) Default in repayment obligations by the unit to the lender and has not utilized the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes.

c) Default in repayment obligations by the unit to the lender and has siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.

d) Default in repayment obligations by the unit to the lender and has also disposed off or removed the movable fixed assets or immovable property given by it for the purpose of securing a term loan without the knowledge of the bank/lender.

Whether a person is a wilful defaulter or not cannot be left to the arbitrary discretion of a bank because a bank will only be guided by its own self-interests. This decision is taken by a Committee which could still be biased towards banks at large. The best way to determine whether a default is wilful or not is in the civil court where a competent judge will look into all the facts and circumstances of the case and give both parties a chance to be heard. Labelling a defaulter as a wilful defaulter without giving him the right to due process is clearly a wrong practice which is giving excess authority to banking institutions.

Implications of being a wilful defaulter

Being a wilful defaulter has grave implications for the borrower because he is cut out from the credit sources and may be blacklisted in the financial community. A person or company would not have access to banks or capital markets for raising funds necessary for day to day operations of business and personal finance. This is extremely harsh for small and medium enterprises, traders, consumers, students and retail borrowers. In addition to this, photographs of defaulters will appear in the newspapers.

Are banks violating the law?

The banking secrecy laws as provided under the Reserve Bank of India (RBI) Act specifically debars lenders from parting with information on borrowers to anyone else, except to the central bank itself and that too when specifically called for under a prescribed format. However, information can be shared with the specific consent of the borrowers, which is often hard to obtain. By publishing the photographs, banks are clearly violating the bank secrecy laws.

Banks try to put social pressure on persons and companies by naming them as wilful defaulters and publishing their photographs. In 2006, a Madras High Court judge said: “If borrowers could find newer and newer methods to avoid repayment of the loans, the banks are also entitled to invent novel methods to recover their dues.” This leads one to think that the publication of the borrower’s photograph is a method of recovery of outstanding dues, whereas in reality the publication happens after the recovery. This is completely beyond the conscience of law. Such methods of pressure are nothing but extra legal means of obtaining recovery because there are no provisions in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) that allow defaulters’ photographs to be published. There is no legal sanction for such methods. Once a default comes to the courtroom, the general public becomes aware of the same because the courtroom matters are in the public domain. For example, where a person has defaulted in payment of loan due to a lending bank, under SARFAESI Act, the lending bank after taking possession under Section 13 (2) and Section 13 (4) may issue a notice that the said property has been taken over by the lender. Once possession has been taken it is implied that the legal damage to the bank has been remedied and the individual is dispossessed. If after that, the bank issues a public notice or advertisement, then it is prima facie defamatory because this advertisement cannot be a mode of recovery. Even if the individual pays up the loan due to such embarrassment, he is still defamed in the eyes of right thinking members of the public. This is not to contend that homeowners can be allowed to walk scot-free but it is ironical that the pain of losing one’s home is not sufficient and the dispossessed person has to bear the brunt of public embarrassment, as if he is a criminal.

Conclusion

Both Madras High Court and Madhya Pradesh High Court favoured the publication of names in newspapers whereas the Calcutta High Court and Kerala High Court have disallowed such practices. Courts need to distinguish the difference between a civil and a criminal offence. For a civil offence, the rigour of embarrassment cannot be so high as to be equated with a criminal offence. Publishing photographs in newspapers is a violation of fundamental rights enshrined under Article 21 of the Constitution and cannot be tolerated in civilised societies.

(Shambo Dey, a student of Government Law College, Mumbai, works as a Research Assistant at Vinod Kothari & Company)

Veeresh Malik

One reason why loan defaulters are not named is also because then the names and identities of the bank staff as well as elected & selected representatives will also be revealed.

Haresh Nagpal

3 years ago

It is the Bankers systems that are at fault.In a business loss and profit are always there .In developed countries there are systems to deal with this.Further the other laws like negotiable instruments neds to be made strict. If banks keep on taking harsh steps then no business venture will take loans.Most of defaults are from big corporates.I have list of 250 listed co's with debt of 350000 crores which I think will never be returned to bank. Harrasing a small borrower will not serve the purpose of banks.

Gopalakrishnan T V

3 years ago

The defaulters of banks are worse than criminals and there is nothing wrong if they are shamed in public. They loot the banks in a dignified way using their intelligence, contact, connections and knowledge and are worse than the pickpockets, robbers and burglars. They loot the depositors' and shareholders' money and the loss is made good by the tax payers who have not taken a single pie from banks.They are all well to do people and only their businesses are sick. In fact banks and legal system should be more stringent with such defaulters who knowingly loot the banks and amass wealth. If this is not criminal as per our present classification, there requires an urgent review of the classification itself.

Yerram Raju Behara

3 years ago

Secrecy laws are umbrellas under which the scourge of defaulters have been taking shelter whether in rain or sunshine. What the SBI has done is a bold step to stem the rot of unheeding and unresponsive defaulters. But the Bank should draw distinction between the circumstantial and willful defaults and publicise or even tom-tom for enforcing the defaulters to repay the loans. Non-repayment is a cost on the depositor. In fact the Banks should also display the photographs of the Directors of the large corporate defaulters and bring them to the notice of SEBI.

RBI came out with the 20:80 gold import scheme notification with an intent to curb volume of gold import in the country and create a more regulated domain for gold trading in India, but it ended up creating confusion among all due to lack of clarity on various issues

The Reserve Bank of India (RBI) came out with a notification on 14 February 2014 revising the existing 20:80 gold import scheme applicable to all the scheduled commercial banks, which are authorised dealers in foreign exchange and all such agencies, which are nominated to import gold. In this write up we intend to show the new scheme after revision.

Existing 20:80 Gold import scheme:-

As per the existing scheme, the nominated agencies, allowed to import gold, were allowed to import only if one-fifth of the quantity of gold imported is used for export (however, supply to the SEZ units will not be qualified as supply to exporters) and the rest of the four-fifth is to be utilised for domestic use and is to be supplied to only those engaged in jewellery business or business of dealing in bullions upon upfront payment. During the second lot of import, the importer will be able to import such quantities, as that of the first lot, only if one-fifth of the quantity imported in the first lot has been supplied to the exporters. Again, the quantum of gold permitted to be imported in the third lot will be restricted to 5 times the quantum for which proof of export is submitted.

This scheme has been shown with the help of the following illustration.

Illustration I:

Lot I of Import – Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) = 100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

Lot II of Import – Quantity of gold to be imported = 100kgs*

*Such quantity to be permitted only if it is proved that (A) has been cleared.

Lot III of Import – Permissible quantity of gold permissible for the purpose of import = 5 x Quantity of export for which proof has been submitted.

Revised 20:80 Gold import scheme:-

Under the revised scheme, the importer will be able to import gold in the third lot only to the extent of the lower of –

i) Five times the export for which proof has been submitted; or

ii) Quantity of gold permitted to a Nominated Agency in the first or second lot.

The revised scheme has been shown with the help of the illustrations in the following table.

Illustration II -

Lot I of Import –

Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) =100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

*Lot II of Import –

Quantity of gold to be imported = 100kgs

Quantity of gold to be supplied to the exporters (C) = 100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (D) = 100kgs x 80% = 80kgs

Lot III of Import –

Permissible quantity of gold permissible for the purpose of import = Lower of –

Quantity of gold permitted to a nominated agency in the first or second lot = 100kgs or 80kgs

Permissible quantity for the purpose of import = Out of the two options, we should select the option (ii), however, nothing has been mentioned in the notification for situations where the quantity of import in the first lot differs from that of the second lot.

*Assumption:

We assume that before importing the second lot, the importer could fulfil only 80% of the requirement of (A) and the importer has been allowed to import after reducing the quantity proportionately.

Illustration IV -

Lot I of Import –

Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) =100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

*Lot II of Import –

Quantity of Gold to be imported = Nil

Quantity of Gold to be supplied to the exporters (C) = Nil

Quantity of Gold to be supplied for domestic use (D) = Nil

Lot III of Import –

Permissible quantity of gold permissible for the purpose of import = Lower of –

Quantity of gold permitted to a Nominated Agency in the first or second lot = 100 kgs or 0kgs

Permissible quantity for the purpose of import = Out of the two options, we should select the option (ii), however, nothing has been mentioned in the notification for situations where the quantity of import in the first lot differs from that of the second lot.

*Assumption:

We assume that the importer fails to meet the requirements of (A), hence, he is not permitted to import further gold.

Reason for different assumptions in case of Illustrations III and IV-

We have taken different assumptions in case of the Illustrations III and IV because the nothing in the notification provides clarity as to what will be the consequence in case the importer fails to fulfil the requirements under (A) in both the cases.

Other provisions in the notification:-

Apart from the above mentioned change in the scheme, the notification lays down the following:

• The imports made as part of the Advance Authorisation (AA) / Duty Free Import Authorisation (DFIA) scheme will be outside the purview of the 20:80 scheme. Such Imports will be accounted for separately and will not entitle the Nominated Agency/ Banks/Entities for any further import.

• The Nominated Banks / Agencies / Entities may make available gold to the exporters (other than AA/DFIA holders) operating under the Replenishment Scheme. They can resort to import of gold for the purpose, if considered necessary. However, such import will be accounted for separately and will not entitle them for any further import.

Conclusion:-

In any economy, if the volume of import increases, provided the volume of export remains unchanged, the current account deficit increases as well. We know that India is one such country which has a very limited gold reserve and it mostly depends on imports, so it is important to control the volume of imports to keep a check on the current account deficit of the country. We understand that the RBI came out with this notification with an intent to curb the volume of gold import in the country and create a more regulated domain for gold trading in India, but it ended up creating confusion among all due to lack of clarity on various issues discussed earlier in this write up. Though the RBI’s attempt to do new things in order to stabilise the India economy is very commendable, but if it fails to come clear, then, we are afraid, none of its measures would work.

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COMMENTS

Dayananda Kamath k

3 years ago

the scheme has been introduced to help gold smugglers to finance during election as well as hawala settlements. gold for industry is restricted but individual imports by nri which is not monitored is allowed freely. even earlier third party imports allowec to continue for 5 years and even after getting reports from 89 branches who have allowed this illegal imports in violation of import export policy and rbi declaring such transactions are illigal are protected by not taking any action. as informed by rbi to tri quiry. now it is up to enforcement directorate to initiate first against rbi for failing in their duty and the respective banks which have hidden this facts even though brought to their notice by special report during audit. this is a gold gate to be investigated after coal gate. apto oor now not